Quote:
Originally Posted by Buehler445
Eh. That’s a little wonky.
401s and traditional IRAs have some theoretical advantages.
You’ve paid tax on contributions to ROTH where as 401s and traditional IRAs are not taxed at contribution. In theory your tax rate will be lower in retirement so there may benefits there. Where the ROTH shines is the gains aren’t taxed.
So the gamble you’re taking is the tax on the basis at the time of contribution is less than the tax on the basis and gain at the time of distribution.
Typically it is but is still a gamble.
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You left out some significant parts..
A) You can withdraw your capital from a ROTH penalty free prior to 59 1/2 if you need the money
B) If you intend to retire and a similar income level that you currently have then you cannot automatically assume you will have a lower tax bracket if you are pulling all of your income from taxable retirement savings such as a 401k or a Traditional IRA
And a notable correction to what you said about where a ROTH "shines". You are not accurate. A ROTH shines in the fact that what you withdraw is not taxed. A Traditional IRA or 401k does not have its "gains" taxed at all. But you will pay tax at the ordinary income level when you do withdraw from them.